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Ups and Downs in Finance, Ups without Downs in Inequality

Author

Listed:
  • Olivier Godechot

    (MaxPo - Max Planck Sciences Po Center on Coping with Instability in Market Societies - Max Planck Institute for the Study of Societies - Max-Planck-Gesellschaft - Sciences Po - Sciences Po)

  • Nils Neumann

    (MaxPo - Max Planck Sciences Po Center on Coping with Instability in Market Societies - Max Planck Institute for the Study of Societies - Max-Planck-Gesellschaft - Sciences Po - Sciences Po)

  • Paula Apascaritei
  • István Boza

    (Research Centre for Economic and Regional Studies - MTA - Hungarian Academy of Sciences)

  • Martin Hällsten

    (Stockholm University)

  • Lasse Henriksen

    (CBS - Copenhagen Business School [Copenhagen])

  • Are Hermansen
  • Feng Hou
  • Jiwook Jung
  • Eunmi Melzer
  • Halil Mun
  • Matthew Sabanci
  • Max Soener
  • Naomi Kodama
  • Alena Křížková
  • Zoltán Lippényi
  • Elvira Marta
  • Silvia Maja Melzer
  • Eunmi Mun
  • Halil Sabanci
  • Matthew Soener
  • Max 2021 Thaning

Abstract

The upswing in finance over the past several decades has led to rising inequality, but do downswings in finance lead to a symmetric decline in inequality? In this paper, we analyze the asymmetry of the effect of ups and downs in financial markets, as well as the effect of increased capital requirements and the bonus cap on national earnings inequality. We use administrative employer-employee linked data on earnings from 1990 to 2017 for twelve countries. Additionally, we use data on earnings from bank reports, from 2009 to 2017 in thirteen European countries. We find a strong asymmetry in the effects of financial ups and downs on earnings inequality, a mitigating effect of rising capital requirements on the contribution of finance to inequality, and a restructuring effect of the bonus cap for the earnings of financiers, while neither policy affects absolute levels of earnings inequality.

Suggested Citation

  • Olivier Godechot & Nils Neumann & Paula Apascaritei & István Boza & Martin Hällsten & Lasse Henriksen & Are Hermansen & Feng Hou & Jiwook Jung & Eunmi Melzer & Halil Mun & Matthew Sabanci & Max Soener, 2021. "Ups and Downs in Finance, Ups without Downs in Inequality," SciencePo Working papers Main hal-03462501, HAL.
    • Handle: RePEc:hal:spmain:hal-03462501
    Note: View the original document on HAL open archive server: https://hal.science/hal-03462501
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    More about this item

    JEL classification:

    • N2 - Economic History - - Financial Markets and Institutions
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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